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IR35 Compliance for Public Companies:

How to Avoid Fines and Keep Your Business Out of HMRC’s Crosshairs

IR35 Compliance is no longer optional, and public companies seem to be in HMRC’s sights. Don’t wait for penalties to strike—Safeguard your business, reputation, and bottom line today.

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IR35 Is Here to Stay

The landscape of IR35 has changed, and it’s not going away. Although not officially stated, HMRC appears to be focusing on public sector organisations. Past cases show that even companies with established procedures have faced penalties due to inconsistent application of IR35 rules. This highlights the need for not just having robust processes, but ensuring they are properly enforced to avoid fines and compliance issues.

Is HMRC Making an Example?

If you’re among the FTSE 250 companies still lacking a robust compliance strategy, you could be next in line. HMRC seems to be set on making an example out of big names in the industry. Don’t let your company become a cautionary tale. Being under investigation can damage your reputation, disrupt your operations, and lead to significant financial penalties.

CXC Comply is here to help you navigate these challenges and stay ahead of the curve.

The Consequences of Getting IR35 Wrong

HMRC has begun sending compliance check letters across industries, probing the processes companies use to assess employment status. If they find gaps, they won’t hesitate to launch full investigations. Make no mistake—this is no longer a drill.

The financial and operational stakes are sky-high.

The Financial Penalties: What’s at Risk?

If HMRC concludes that your organisation has made incorrect IR35 determinations, the financial fallout can be devastating. Not only will you be liable for 100% of the unpaid taxes, National Insurance Contributions, and Apprenticeship Levy, but you’ll also face additional fines depending on the severity of the error:

30% of unpaid tax if HMRC deems you were careless, but unaware.

70% of unpaid tax if you knew but failed to act.

100% of unpaid tax if it’s found that you deliberately tried to conceal the issue.

Example: For instance, if a contractor earns a day rate of £500, the End-Hirer could be responsible for unpaid tax and national insurance contributions, estimated at £24,420. Additionally, penalties ranging from £7,326 to £24,420 may be imposed, depending on the severity determined by HMRC following an investigation. This means the total estimated liability could range from £31,746 to £48,840 for a single inaccurate determination per year. This figure excludes potential interest and late filing fees, which may also be applied.

The Non-Financial Risks: More Than Just Money

The costs go beyond the financial. Missteps with IR35 can tarnish your reputation and have lasting repercussions:

Reputational Damage: HMRC can publicly name companies that fail to comply, exposing your brand to negative press.

Contractor Relationships: Contractors, agencies, and other partners may avoid working with you, seeing your company as high-risk and opting for competitors instead.

Competitive Disadvantage: A poor track record on compliance can exclude you from government contracts and preferred supplier lists, putting you at a distinct disadvantage in your industry.

Contractual Breaches: Non-compliance may even breach existing contracts, opening you up to legal claims and liabilities.

Public Sector Nightmares: A Glimpse of What’s Coming?

HMRC is already hitting the public sector with massive fines, sending a clear message: Compliance is critical for all entities – and you could be next. The following cases highlight the seriousness of non-compliance, and signal an era of increased scrutiny across sectors.

£87.9 Million – Department of Work and Pensions (DWP):

Incorrect assessments using HMRC’s CEST tool led to a nearly £88 million fine.

£33.5 Million – The Home Office:

Misclassification between 2017 and 2021 resulted in a £29.5 million fine and an additional £4 million penalty.

£4.3 Million – NHS:

Misuse of the CEST tool and incorrect classification resulted in a £4.3 million penalty.

£86.5 million – Defra (Department for Environment, Food and Rural Affairs)

Paid HMRC £86.5 million in back taxes in 2022 for off-payroll errors.

£6.2million – HS2 (High Speed Two):

Paid HMRC £6.2million for mismanaging IR35 off-payroll rules.

£12.5million – The Ministry of Justice:

Paid £12.5 million for “incorrect” IR35 determinations.

£19 Million – Natural Resources Wales (NRW)

A £19 million tax settlement was paid following HMRC’s investigation into NRW’s use of specialist contractors.

Next case on the chopping block...

The next HMRC crackdown is just around the corner – prepare or risk the spotlight.

Will You Be the Next Target for HMRC?

Picture this: You’re a public company, relying on specialist contractors to meet critical project demands without committing to full-time hires. It’s efficient, flexible—and it keeps costs down.

Until HMRC steps in, raising questions about off-payroll compliance and IR35. Suddenly, you’re looking at a massive tax bill, interest, and potential penalties. Investors are wary, and stakeholders are questioning your compliance processes. With an investigation underway, reputational risk rises, and now you’re scrambling to assure the board this won’t turn into a financial and operational setback. Could you be next on HMRC’s list?

The Message is Clear: Compliance is critical for all entities – and you could be next.

HMRC’s actions show they mean business, and businesses need to act now to avoid falling into the same traps. IR35 compliance isn’t just a checkbox—it’s a necessity to protect your organisation from financial ruin and reputational harm.

CXC Comply is your partner in this volatile, uncertain environment, helping you stay compliant and prepared for whatever comes next. Remember, relying on CEST won’t shield you from HMRC.

Tips for Complying With IR35 Rules

To safeguard your organisation’s hiring practices for UK contractors under IR35 regulations and prepare effectively for any potential audits, it is crucial to implement the following measures:

Know whether IR35 applies to your business

Correctly classify all UK contractors

Stay on top of future legislative changes

Don't rely only on CEST - Mitigate your risk by working with an experienced compliance partner — like CXC.

Mitigate Risk with CXC Comply

CXC Comply offers a comprehensive solution that includes worker classification, risk assessment, and ongoing compliance management. Our team of experts will work closely with you to establish processes that demonstrate your organisation’s proactive approach to IR35 compliance. While no system can prevent HMRC scrutiny, having clear evidence of due diligence is crucial in defending against claims of non-compliance or negligence.

With CXC Comply, you gain access to industry-leading expertise and technology that mitigates your IR35 risk.

CXC Comply:

Trusted by Global Leaders, Proven by Results

CXC has a 32-year history of mitigating co-employment, misclassification, and financial risk for medium and large enterprises. We have a world-class compliance platform that has been deployed by the world’s Number 1 technology company, the world’s Number 1 med-tech company, the UK’s largest privately held software company and Israel largest IT Software company.

We do it better, faster and and have the track record to prove it.

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Compliance Success Story: Contractor Classification For a Global Tech Giant

This well-know global technology company grappled with the task of precisely categorising over 150 Independent Contractors worldwide to comply with UK legislation, necessitatingaccurate classification within its vast network of directly engaged contract workers.

The collaboration between CXC and the company resulted in the successful implementation and launch of the IR35 module within a 12-week sprint.

The Challenge

This technology company faced a significant challenge concerning its extensive network of contract workers situated around the globe, a majority of whom were directly engaged and identified by the company.

Within the scope of UK legislation, the company urgently needed to accurately classify all Independent Contractors for IR35 compliance. This entailed correctly determining the employment status of over 150 Independent Contractors.

The Solution

To address this challenge, CXC assembled a dedicated team for project delivery and IT development. Their task was to construct and configure a dedicated IR35 classification module tailored for the company’s needs. This module was seamlessly integrated into CXC’s Independent Contractor Classification Platform – CXC Comply.

The collaboration between CXC and the company resulted in the successful implementation and launch of the IR35 module within a 12-week sprint. This endeavour involved close coordination with stakeholders from various departments within the company, including Finance, Legal, Technology, and Operations. In February 2021, the platform went live, with CXC’s Support and Account Team Members equipped with company-approved tools and equipment.

To ensure the successful uptake of the new system, CXC devised a comprehensive plan encompassing communication, training, and escalation procedures for all relevant stakeholders within the company. This was further bolstered by regular training sessions conducted by CXC on their platform, which facilitated a smooth transition for company personnel.

The Outcome

CXC’s solution empowered the technology company with a centralised overview of their contract workforce, ensuring accurate classification. This, in turn, mitigated potential risks such as penalties, fines and legal disputes.

Starting with 150 workers to classify, the project grew to, and resulted in, the accurate classification of over 250 UK workers for IR35 purposes within the company.

Through this collaboration, a strong and productive relationship was cultivated between CXC and the company. This rapport paved the way for the expansion of the program to an additional 18 countries globally, including in the regions of Europe, The Middle East, Africa, Asia, and Latin America.

The success of the program hinged on the precise classification of workers. To facilitate this, CXC worked closely with the company’s Employment Tax Team, to develop bespoke independent contractor classification frameworks for each respective country and region that were in scope of the service. The frameworks included a comprehensive list of questions which had been reviewed, weighted, and signed off by both the company’s Employment Tax Team and Legal Team. To support the classification assessments, CXC also conducted a compliance vetting process, which required the independent contractor to provide evidence of their right to work within the stated country and provide respective company documents to support their stated engagement type. With both processes running simultaneously, the client was able to effectively engage independent contractors, whilst mitigating the associated risks. These tests played a crucial role in identifying any instances of misclassified employees.

IR35 Classification the Easy Way

We know keeping up with compliance requirements can be tricky.

That’s why we’ve created a digital platform that checks three of the most important compliance boxes when it comes to hiring contractors. We call it CXC Comply.

CXC is here to help you navigate these urgent changes with confidence and precision. Secure your business against potential penalties – Book a FREE consultation now!